CANADA FX DEBT-Election jitters, oil slump weaken Canadian dollar

Reuters Staff

3 Min Read

* Canadian dollar at C$1.3019, or 76.81 U.S. cents
* Bond prices higher across the maturity curve
(Updates with final prices)
By Alastair Sharp and Leah Schnurr
TORONTO/OTTAWA, Oct 19 (Reuters) - The Canadian dollar
weakened against its U.S. counterpart on Monday as oil prices
fell and as voters looked set to elect as prime minister a
candidate who was promised to spend on infrastructure to stoke
economic growth.
After an unusually long 11-week campaign that was considered
too close to call for much of it, polls showed a strong prospect
that Conservative Prime Minister Stephen Harper's government
would be ousted or reduced to a minority because of a late surge
by the Liberal party.
If elected, the Liberals, led by Justin Trudeau, plan to run
deficits in order to increase spending on infrastructure.
"It's looking like it's going to be a Liberal government,"
said Blake Jespersen, a managing director for foreign exchange
sales at BMO Capital Markets. "Trudeau's made it clear that he
has some aggressive spending plans to boost the economy, and
it's not necessarily well liked by markets when government plans
to spend their way out of trouble."
Jespersen said worries about a potential Liberal victory may
have accounted for as much as 20 percent of the weakness in the
session, but that any election effect would likely not sustain
itself beyond the day.
The Canadian dollar ended at C$1.3019 to the
greenback, or 76.81 U.S. cents, according to the official close
from the Bank of Canada, weaker than Friday's close of C$1.2911,
or 77.45 U.S. cents.
The Canadian currency has strengthened more than 2 percent
this month, in line with a broader move toward riskier assets.
But a drop in the price of oil, a major Canadian export,
helped drag the loonie down on Monday. U.S. crude prices
settled down $1.37 at $45.89 a barrel.
Analysts were also looking to a Bank of Canada interest rate
decision on Wednesday. After two rate cuts this year, the
central bank is expected to hold steady as it updates its
economic forecasts.
With the market expecting rates to be held steady through
the middle of next year, the risk is that the bank is more
worried than the market about the effect low crude prices are
having on capital spending plans, said Adam Cole, global head of
FX strategy RBC Capital Markets.
Canadian government bond prices were higher across the
maturity curve, with the two-year up 2 Canadian cents
to yield 0.528 percent and the benchmark 10-year up
11 Canadian cents to yield 1.457 percent.
(Editing by Jonathan Oatis and Steve Orlofsky)